Morning Petrospective – August 4, 2011

il prices were significantly lower on Wednesday in the move we have been looking for. With the Bollinger Bands contracting, coming together dramatically, we knew that a big move had to be coming. After seeing heating oil prices continue to assault 314.00, we thought yesterday that the move would be higher. The fundamentals were bearish but the resilience of heating oil spooked us. That is not the way to go, it now seems. Wednesday’s big decline should mean that the big move will be on the downside.

Of course, oversold pressures and support might turn prices quickly back up. That is our next big concern. And, there is one event that could take oil prices right back up – QE3. With the stock market getting hammered, there has been fresh talk of the Fed possibly giving us another round of quantitative easing – QE3. If that were to be the case, then oil prices would advance significantly. And the dollar would get killed.

The US dollar was lower on Wednesday after two days of moving higher. At about 3 AM, the dollar peaked for the day and it dropped steeply until about 6 AM. It worked sideways to lower from there.

Wednesday’s settlement levels left oil prices at their lowest levels in five weeks. Oil demand was certainly one of the bigger factors. And, while four-week gasoline demand fell from 3.31% lower to 3.63% lower, total four-week demand rebounded from 2.88% lower to 1.97% lower. And, the real shocker was four-week distillate demand jumping from 3.49% lower to 1.69% higher. Distillate demand jumped 540,000 bpd in the latest weekly report. That is such a strong rebound that we had to check it three times.

Traders focused on the increases in inventories in this week’s report. To most observers, the increases suggested poor demand. Gasoline demand, which normally grows through the summer, has been extremely weak this year. Refinery utilization was up one percent, and that should mean more supplies in the coming weeks.

But, demand had been dropping at a steady clip prior to this report. And, we have to expect that this week’s distillate figure was a combination of secondary storage refills along with exports. We certainly did not actually use that more diesel in the latest week. Still, it has changed the demand factor in the distillate equation in a major way.

The ISM non-manufacturing index fell to 52.7 in July from 53.3 in June. Taken together with the manufacturing index, Capital Economics projects GDP growth of 1.5% based on the figures. The employment index fell to 52.5 from 54.1, and it is consistent with jobs growth of 100,000 in the private sector. Taken with government layoffs, CE sees an increase of about 50,000 in the monthly Labor Department figures due out on Friday. The ADP survey showed an increase of 114,000 in private sector jobs, down from 145,000 in June.

FMX Newswire

FMX Newswire is an overnight news summary designed to meet the needs of professional energy traders. The content is to-the point, professional grade and not widely reported in the mainstream media. All sources are professional respected firms and newspapers.

Bentek Energy

• Power Burn Analytic Report – Power Burn on Downwards Trend for the Remainder of the Month.
• Supply Demand Balance Analytic Report – Revisions Send Dry Production to 62.1 Bcf/d on August 2.
• Industrial End Users Analytic Report – Webinar Available Next Week for Industrial Demand Report.
• Nuclear Plant Status Analytic Report – Browns Ferry Remains at 50% Utilization.

Platts

• China's oil consumption estimated to slow, but demand will still outpace the rest of the world.
• VLCC owners may idle vessels on poor returns for PG-N Asia voyages.
• S Korea August bonded bunker supply steady from July despite weaker premiums.
• Japan's Marubeni and Rosneft in talks on Okhotsk Sea #oil and #gas projects.

Bloomberg

• Crude Trades Near Five-Week Low as Economic Concern Counter Stimulus Signs.
• Mitsubishi Heavy Said to Scrap Merger Talks With Hitachi After Media Leaks.
• Syrian Violence Condemned at UN as Hama Shelled.
• Euro Problems Need Fixing Before Financial Markets Lose Their Faith: View.

Technical Recap

Crude Options Report / Straddle Runs

NG Options Report

Market Prices

Premium Subscriber (click here to register):

Volumes & Open Interest

End Of Day Straddles

Settlements

To view our energy news and articles on your PDA or mobile device, click here.